Competitive Challenges: Can We Believe Them This Time?

The last 18 months have certainly forced companies to look at their businesses differently than they have ever had to.

The last 18 months have certainly forced companies to look at their businesses differently than they have ever had to. There is exciting transformation happening at many suppliers as they realize the game is different and they need a new strategy. But their customers also have a new strategy or at least that is what they are calling it. But actually they are not new strategies—they are things that the companies have talked about for years but have just not executed. Things like common platforms, global standards, and supplier consolidation at the OEMs so that they have fewer, stronger suppliers.

These strategies were discussed in the '80s and '90s and implemented to different degrees, but never successfully. Suppliers sat in meetings and listened to various VPs of purchasing from the OEMs preach these strategies, and in the beginning maybe got excited and thought, "They actually get it and this will really drive change." But after starting, stopping and failing so many times, suppliers are now cynical about what the purchasing and engineering teams are telling them, and rightfully so.

So what's different now? Can we actually believe them this time? Many suppliers still say no—we can't believe them any more now than we could before. Recently I facilitated a panel discussion at the headquarters of American Axle in Detroit with John Henke, president of Planning Perspectives, Tony Brown, executive vice president of Global Purchasing for Ford Motor, Scot Sharland, president of the AIAG, and David Culton, vice president at American Axle.

During the audience Q&A, there was a common thread tying together the questions asked of Tony Brown: Doubt. Questions started with things like "Do you really believe..." and "How can you make us believe..." Some would say that this doubt is valid and that Brown and other purchasing czars need to hear those remarks. I'm sure these guys have heard all manner of criticism over the years, but the shocking thing at this point is that there is clearly so much doubt and lack of knowledge about why these changes are needed.

When the domestic companies began to hit the skids a few years ago and talk of buyouts and layoffs occurred, I was one of the first cynical people who asked how can they cut the purchasing and engineering staffs in half to save money when they haven't solved the problems that allowed them to get so bloated in the first place. This was the lack of common platforms and components. As long as the domestic companies had different models with no commonality to any other they would need all those people to engineer the parts and purchase external components to support the vehicle. Additionally, as long as there were so many variations, all of the thousands of suppliers out there were needed to create competition, manage capacity and force down price. So that continued for many years, and when the companies tried to eliminate people, they typically couldn't shrink engineering and purchasing so they picked on manufacturing.

It has taken many years and lots of very painful learning, but now the companies have a different perspective. They always knew how to do it, but the leadership and culture of the companies would not allow them to evolve. This is one reason why the past 18 months of economic crisis was good for the industry. A loud wake-up call needed to be delivered in a way that drove real change and not just talk.

The domestic auto industry has struggled with execution for years. Recently a high-level executive at one of the Detroit Three said, "We are really good at developing strategy but lousy at execution and that has to change. And when it does, we will fly up the curve." Some may not agree with all of that statement but the fact is true—execution is the key.

Today these companies have developed their strategies for common platforms and architecture and are rapidly implementing them with each new product launch. Supplier consolidation is happening, although many in the industry still deny it. The Detroit Three will have fewer suppliers, and those that don't believe this will happen may not be part of the chosen. With common platforms and components they can now actually execute with fewer suppliers and further reduce their in-house staff for purchasing. This may resemble what was talked about in the past. But it is happening.